MONTENEGRO: ECONOMIC DEVELOPMENTS: FEBRUARY 2006

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SIPDIS

SIPDIS

DEPARTMENT PASS TO OPIC, EXIM, TDA AND USAID
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TAGS: ECON EFIN KPAO ETRD EINV EAID PGOV MW SR
SUBJECT: MONTENEGRO: ECONOMIC DEVELOPMENTS: FEBRUARY 2006


Index:
MACROECONOMICS:
-- Five Percent GDP Growth Predicted

BUSINESS and TOURISM:
-- Funding for Entrepreneurs
-- Sixth Internet Provider
-- Banks Report 2005 Profits
-- Microsoft Engages in Montenegro
-- Niksic Steelworks
-- GoM Agrees 2006 Privatization Plan

PUBLIC ECONOMY:
-- Unemployment Steady
-- Pensions Increased

T-BILLS
STOCKS

MACROECONOMICS:

Five Percent GDP Growth Predicted


1. (U) The Institute for International Economic Studies
(WIIW) in Vienna projects the GDP growth in Montenegro will
reach 5.0 percent. GDP growth was 4.0 percent in 2004 and
3.7 percent in 2005. WIIW expects unemployment to plateau
at the current level, and inflation to rise slightly to 3.0
percent from 2.5 percent in 2005.

BUSINESS and TOURISM:

Funding for Entrepreneurs


2. (U) The GoM announced it will provide Euros 11.2 million
in credits to support the growth and development of small
and medium enterprises (SMEs). The GoM is looking for SME
growth to cut the unemployment rate, and will tie the
loans, with favorable interest rates and repayment terms,
to job creation. Projects in less developed regions will
enjoy even more favorable terms.

Sixth Internet Provider


3. (U) VIP Broadband Montenegro, a UK-Netherlands-
Montenegro firm, will become Montenegro's sixth Internet
provider (ISP),and the second to focus on broadband.

Banks Report 2005 Profits


4. (U) The ten leading banks in Montenegro combined for a
profit of Euros 4 million in 2005, after losing Euros 1.1
million in 2004. Of the ten, only one lost money:
Hypothecate Bank, which while still plagued by management
problems, lost only Euros 2 million in 2005 compared to
2004 losses of Euros 7.3 million. Opportunity Bank,
initially established in 2002 with support from USAID to
focus on microenterprises, and whose majority shareholder
is a U.S. NGO, reported profits of Euros 1.4 million.

Microsoft Engages in Montenegro


5. (U) Microsoft is working with the GoM and with private
business to increase the use of licensed software in
Montenegro. After meeting with PM Djukanovic, Bill Gates
announced Microsoft would provide software on favorable
terms to Montenegro's educational and scientific sector. In
the private sector, Microsoft will team with NGO Montenegro
Business Alliance to educate business about intellectual
property rights.

Niksic Steelworks


6. (U) The preliminary GoM auditor's report on Midland
Resources management of Niksic Steel evinces Midland's
contractual failures, media reported. Midland, a UK-
offshore firm with Russian capital, privatized Niksic Steel
in 2004, with the obligation to make significant
obligations. The auditor's report says that when Midland
walked away in November 2005, it left a debt of more than
Euros 2.6 million to Montenegro. Deputy PM Gvozdenovic
promised that the GoM would get Midland to pay all arrears,
by agreement or by lawsuit.

GoM Agrees 2006 Privatization Plan


7. (U) With about 80 percent of Montenegro's state-owned

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industries now privatized, the GoM announced its
privatization plan for 2006. The first companies on the
list are generally smaller industries with niche (or
sometimes non-existent) markets, without prominent firms
like KAP or Telekom CG, both privatized in 2005.
Privatization strategies will be developed for Electric
Power of Montenegro (EPCG),the Port of Bar, Plantaze
Vinyards, Montenegro Airports (with facilities in Podgorica
and on the coast at Tivat),and Montenegro Airlines, as
well as a renewed effort to privatize the Niksic
Steelworks. Tenders for the latter companies will probably
not be published before the end of 2006.

PUBLIC ECONOMY:
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Unemployment Steady


8. (U) The GoM said unemployment was steady at 18.4
percent. Labor Ministry officials said that the real
unemployment, calculated by international standards, was
between 12 and 15 percent.

Pensions Increased


9. (U) Pensions in Montenegro for the first half of 2006
will be increased by 6.36 percent as compared to December

2005. The first significant increase in pensions in
several years will raise average pensions to Euros 137 per
month (low: Euros 50, high Euros 571).

T-BILLS


10. (U) Two auctions of Treasury bills, with a total face
value of EUR 2.2 million, was held in January (note: data
lags by one month). The average weighted annualized
interest rate for the auction held in January amounted to
0.59 percent. The lowest accepted interest rate at the
auctions held in December was 0.49 percent while the
highest accepted interest rate was 0.69 percent.
Participants at the auctions included local banks.

STOCKS


11. (U) The NEX20 index of the Nex Montenegro Stock
Exchange ended the month of February at 10,251.87, down
2.02 percent. The Moste index of Montenegroberza declined
1.6 percent to 480.786 in February. Major components of the
NEX20 include the privatized Telekom CG and Jugopetrol;
major components of the Moste include publicly traded
shares of aluminum smelter KAP and vineyard Plantaze. Note:
The Montenegrin exchanges are still nascent, and the level
of capitalization represented is small although rising (NEX
capitalization at the end of 2004 was Euros 495 million; at
the end of November 2005 it was Euros 1,410 million).

POLT